Move increases speculation that QBE takeover will complete

IAG has lowered its 2008 forecast margin to 6-8 per cent, resulting in a fall in its share price to just 2 per cent above rival QBE's takeover offer.

Last week QBE, which made an initial approach for IAG on 10 April, extended its $7.4bn offer to 5 May.

IAG, which rejected QBE's initial bid, said that the revision of its projected earnings was the result of exposure in the underpriced UK motor market, claims relating to weather, and widening credit spreads.

For the second time this year, IAG also reduced its forecast for gross written premium growth from 7-9 per cent to 5.5-6.5 per cent. In February, it predicted a margin of 9-11 per cent.

IAG's shares fell by over 3 per cent in the wake of the news.

In a statement IAG said it planned to revamp its products and rebalance its UK portfolio toward speciality motor classes while reducing its exposure in the private motor market. In a related development, the insurer increased its post-tax expenditure saving target in the UK from £25m to £27m.

Despite the news, James Strong IAG chairman insisted that IAG would not sell the business. He said: "Notwithstanding today's announcement, the board continues to be of the view that QBE's proposal is inadequate because of the inherent and long-term value in IAG – its brands, market penetration and unique scale.”

IAG chief executive officer, Mr Michael Hawker added: “Our performance in [the 2008 financial year] does not reflect our long-term prospects and underlying profitability. It reflects the current weakness in insurance cycles in our core markets.

"We continue to be of the view that the Group is well positioned to improve its performance once more normal operating conditions prevail.”